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Semi-static hedging under exchangeability type conditions

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Author Info
Ilya Molchanov
Michael Schmutz
Abstract

In this paper we analyse financial implications of exchangeability and similar properties of finite dimensional random vectors. We show how these properties are reflected in prices of some basket options in view of the well-known put-call symmetry property and the duality principle in option pricing. A particular attention is devoted to the case of asset prices driven by Levy processes. Based on this, concrete semi-static hedging techniques for multi-asset barrier options, such as certain weighted barrier spread options, weighted barrier swap options or weighted barrier quanto-swap options are suggested.

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File URL: http://arxiv.org/abs/0901.4914
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Paper provided by arXiv.org in its series Quantitative Finance Papers with number 0901.4914.

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Date of creation: Jan 2009
Date of revision: Mar 2009
Handle: RePEc:arx:papers:0901.4914

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  1. JosÉ Fajardo & Ernesto Mordecki, 2006. "Symmetry and duality in Lévy markets," Quantitative Finance, Taylor and Francis Journals, vol. 6(3), pages 219-227, June. [Downloadable!] (restricted)
  2. Michael Schmutz, 2008. "Semi-static hedging for certain Margrabe type options with barriers," Quantitative Finance Papers 0810.5146, arXiv.org. [Downloadable!]
  3. Laurence, Peter & Wang, Tai-Ho, 2009. "Sharp distribution free lower bounds for spread options and the corresponding optimal subreplicating portfolios," Insurance: Mathematics and Economics, Elsevier, vol. 44(1), pages 35-47, February. [Downloadable!] (restricted)
  4. José Fajardo & Ernesto Mordecki, 2005. "Duality and Derivative Pricing with Time-Changed Lévy Processes," IBMEC RJ Economics Discussion Papers 2005-12, Economics Research Group, IBMEC Business School - Rio de Janeiro. [Downloadable!]
  5. Ross, Stephen A, 1976. "Options and Efficiency," The Quarterly Journal of Economics, MIT Press, vol. 90(1), pages 75-89, February. [Downloadable!] (restricted)
  6. José Fajardo & Ernesto Mordecki, 2008. "Symmetry and Time Changed Brownian Motions," IBMEC RJ Economics Discussion Papers 2008-02, Economics Research Group, IBMEC Business School - Rio de Janeiro. [Downloadable!]
  7. José Fajardo & Ernesto Mordecki, 2009. "Skewness Premium with Lévy Processes," CREATES Research Papers 2009-10, School of Economics and Management, University of Aarhus. [Downloadable!]
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  8. Ernst Eberlein & Antonis Papapantoleon & Albert N. Shiryaev, 2008. "Esscher transform and the duality principle for multidimensional semimartingales," Quantitative Finance Papers 0809.0301, arXiv.org, revised Nov 2009. [Downloadable!]
  9. Jos㉠Fajardo & Ernesto Mordecki, 2006. "Pricing Derivatives On Two-Dimensional Lã‰Vy Processes," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 185-197. [Downloadable!] (restricted)
  10. Ernst Eberlein & Antonis Papapantoleon & Albert Shiryaev, 2008. "On the duality principle in option pricing: semimartingale setting," Finance and Stochastics, Springer, vol. 12(2), pages 265-292, April. [Downloadable!] (restricted)
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